Case Study of the Week
This case study is based on actual trades using the strategies taught by the team at Options Money Maker. Our focus is to teach traders a consistent and conservative approach to trading credit spreads, debit spreads and other combination spread strategies to earn higher than average returns.
We believe that there is no better manager of your money than you, armed with the education and experience to create great returns and do it with peace of mind. We also believe that there is no better way to learn than to “mimic the masters” and then actually do it yourself! These case studies are designed to be a supplement to your education and show you real examples of the trades we open, close and adjust while minimizing risk, eliminating fear and growing a big account.
We just finished the holiday season and time to reflect on what we wanted to see under the Christmas tree. What would you rather have, a card containing $100 cash, or an educational process that would create $100 time after time after time throughout the year? The answer is obvious so what is keeping us from taking action? Give yourself the gift of financial control by clicking on the link above.
Case in point…our investors had a Put Credit Spread on RUT at 1100/1095 when the index was trading at 1125. There was 4 weeks to expiration and the credit was $1.30. After a review of the charts it was uncertain which direction that the index would move next so we instructed our investors to add a Call Credit Spread to create an Iron Condor. We selected the same expiration period as the Put Credit Spread and received a $1.30 credit for strikes of 1160/1165. This would allow us to create profits regardless of the direction of the market and provided a nice “sweet spot” between 1100 and 1160.
What happened next…?
RUT moved up 15 points the next day which allowed us to close our Put Credit Spread for a profit of $.55 or a very nice 15% on cash at risk. The Call Credit Spread still had 4 weeks to expiration. All indicators were that the next move in the index was likely to be down even though the index was now trading at 1145. Now it was simply a situation of patience to wait for the inevitable cycle down which would create additional profit for us by closing the Call Credit Spread.
What Happened Next…?
We had desirable answers to 2 of our 3 key questions used to evaluate a position…
Did we have time pressure? No, there was 4 weeks to expiration.
Did we have price pressure? No, the position was still out of the money.
Did we have a profit? No.
Options included rolling out the position to gain additional time, rolling up the position to a higher strike price to enhance chances of a profit, or to wait another day or two to see if the index declined. Those investors who chose to do nothing were rewarded. Over the next two days the RUT declined by 13 points which allowed them to close the position for a profit of $.40. So we made money on the move up and more money on the move down. Why would investors be willing to do nothing and hope for a significant decline in the index? Because they knew that if that did not occur that they could still execute other management techniques. Would you have known what to do? How would you have managed this situation?
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